AUD Surges on Risk Rally- Dwindling Haven Demand Weighs on JPY, USD

The Australian dollar is the top performing currency in pre-market trade with an advance of more than 2.6% against a weaker greenback. Risk-appetite saw a sharp rebound in European trade as markets rallied on hopes that the officials will devise more aggressive measures to save Italy as bond yields around the periphery continue to climb. Strong sales over the holiday weekend also supported sentiment after the Washington-based National Retail Federation said that sales had totaled $52.4 billion with the average consumer spending $398.62, up from $365.34 last year. Today’s rally comes on the heels of the worst Thanksgiving week in equities since the Great Depression in 1932, with Dow and the S&P off by 4.78% and 4.69% respectively. Oversold conditions coupled with an extreme on bearish market sentiment suggests that an interim bottom may be put in place as markets await further developments out of Europe.

Classic risk-on flows have dominated trade ahead of the open with higher yielding “risk” currencies advancing across the board. The AUD/USD pair surged at the Asian open, breaking out of a descending channel formation dating back to November 13th highs before running out of steam just ahead of interim resistance at the 50% Fibonacci extension taken from the October 27th and November 13th crests at 0.9910. A break above this level eyes subsequent targets at 1.0030 and the 38.2% extension at 1.0070. Interim support rests at the 68.2% extension at 0.9908 backed by 0.9860 and the 76.4% extension at 9806. Notwithstanding further developments out of Europe, look for the aussie to remain well supported over the next 24-hours as markets take a reprieve from the heavy selling pressure seen last week.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.0333

50-Day SMA

1.0080

20-Day SMA

1.0107

2011 AUD High

1.1079

The yen is the weakest performing currency at the open with a fractional advance of just 0.01% against the dollar. The yen has come under pressure as investors go back on the hunt for yields with the USD/JPY paring overnight losses early in European trade. Yen losses continue to outpace those of the greenback with the Japanese currency falling against all its major counterparts amid today’s risk rally. Expect yen losses to persist with a break above channel resistance eyeing topside targets at the 38.2% Fibonacci retracement taken from the intervention advance at 77.98. Subsequent ceilings are seen at 78.25 and the 23.6% retracement at 78.55. Interim support now rests at 77.70 backed by the 50% retracement at 77.50 and 77.30. Trader will be eyeing data out of Japan with October household spending, jobless rate, and retail trade on tap overnight.